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Tuesday, January 19, 2016

Whenever I talk about the battles and intrigue involved with Southern Pacific's bypass around downtown San Jose in the 1930's, it's usually from the point of view of the critics. The SP's first routing went a bit too close to the new homes in Palm Haven, causing that new suburb to rise up in arms. They got their neighbors to agree with them, prompting the Willow Glen neighborhood to rise up and incorporate as its own city in 1927.

Thanks to some lost court battles and additional re-routing, the new line was finally built in the 1930's, and the old Market Street train station closed down on December 30, 1935. If they hadn't succeeded, we'd still be having trains running down Fourth Street right in front of San Jose State.

Old newspaper articles hint at the disdain for the old railroad station on Market Street, describing it as old, sooty, murky, smoky roundhouse. The above photo, though, highlights how old-fashioned some folks thought the old station was. They also apparently believed the depot would never be replaced, and we'd be stuck with the murky old station until its hundredth anniversary in 1986.

There's some obvious inaccuracies in the float's version of the station. From the floor plan I've seen, only the men's bathroom entrance was on the exterior; the "modern" women's restroom was reachable from the women's waiting room. The single waiting room door isn't correct either. The main public area, according to a 1910 floor plan was divided into a "men's" and "women's" waiting rooms, with the ticket seller's area separating the two. The sack nailed on the wall suggests that SP's trash bins were a bit primitive. I don't know if the half-moon cutouts were prototypical, but for safety, I'll add them to my model.

Or perhaps I should just park an HO model of the float out in front of my station?

There's not a lot of sources for photos of the San Jose Market Street railroad station, but we've at least got one motion picture. The California Pioneers of Santa Clara County shared a home-movie from 1927 showing the Normandin family outside the station. Much of the footage of the station gets blocked by all those people in the way (imagine that in a home movie!) but you can see a bit of the station exterior and its stick-style architecture.

Interesting trivia: here's the janitor's cart, probably taken from an old two-wheeled luggage cart. Note the brooms. The actual luggage carts were open, with wood slats for sides.

Some of the shots also show how busy the south side of Bassett was, with bars, hotels, and all the other businesses you'd expect near the railroad station. Most of the photos I've seen make it look like the area in front of the station was much more empty.

If there’s one word that defines Silicon Valley these days, it’s "disruption". A high tech company sees some industry that works inefficiently, does an end-run around the current folks in that business, and "reinvents" the business. We’ve seen it with companies reinventing advertising (Google), book sales (Amazon), taxis (Uber), or want ads (EBay / Craigslist). Sometimes, these can be great for consumers. Taxis on demand! Diapers and ice cream delivered to your door on demand! However, if you’re in the established business, your life becomes very, very difficult.

Luckily, things were so much simpler in the old days, with friendly orchardists, canneries, packers, and wholesalers living in happy harmony… right?

Not quite. The Valley was full of stories of reinvention, obsolescence, and battles to keep up with the Jones's Cannery. The Santa Clara Valley was the site of one particularly big battle back in 1920, as the large meat packers attempted to move into the wholesale grocery business. Their effort turned into ten years of battle over the Packer's Consent Decree, deciding whether the meat packers should be allowed to sell canned fruit, and whether one of the upstart canners - the California Cooperative Canneries - was merely a front and supplier for the Armour monopolists, or was a farmer-owned attempt to do an end run around canners and wholesalers that had unfair control over the price of fruit.

Cooperatives Blossom

When the fruit business first hit California, growers and packers followed the customs of the day; as "Sunsweet Story" put it, "the first duty of each individual... was to look out for his own interests almost wholly to the exclusion of the interests of others." Everyone pulled their own tricks to increase profits. Farmers would send green fruit to the cannery hidden in the bins. Packers would spread false rumors about low prices, or mix poor-quality fruit in with better fruit. Wholesalers in Europe would reject an arriving shipment, knowing the shipper would have to sell the "bad" fruit at a lower price.

Everyone also thought the other guy was making a killing. Growers assumed that the packers were making money at their expense. Canners were suspicious of the wholesalers and brokers selling their crop, and assumed their growers would flee to a canner offering more money each year.

For the growers, the solution was to go in collectively and run their own processor. These efforts started in the 1890s with dried fruit collectives doing their own packing and selling. The first round of co-ops (including the California Dried Fruit Association and Santa Clara Valley Fruit Exchange were unsuccessful. However, during World War I, a new generation attempted to use the co-op model. Orchardists selling dried prunes and apricots created the well-known California Prune and Apricot Growers (which we still know as Sunsweet). Raisin growers in Fresno started the Sunmaid co-operative. On the canning side, the movement led to co-operatively owned canners such as California Cooperative Canneries.

California Cooperative Canneries

Like Sunsweet, the California Cooperative Canneries was an attempt to work around the packers and better control the prices paid to growers. The cannery was the work of one Vernon Campbell, an inventor, canner, and most of all "promoter". Vernon's brother, the well-known Southern California lawyer Kemper B. Campbell, described his brother as "the genius of the family” for his work in the canning industry.

"[Vernon was] the first one to can olives in tin… invented the process of making all the olives look black and shiny, whether they were black and shiny when they started out or not… a pioneer in teaching the rest of the country to eat ripe olives", and learned how to transport ripe olives in brine".

In addition, Vernon started Moneta Canning in Ontario, California with his family, managed the Central California Canneries plant at Visalia in 1913. Vernon was also a true believer in grower cooperatives, starting several in the early teens.

Vernon Campbell, 1922.

Based on his experience in the olive and canning industry, Vernon wanted to shake up the canned fruit industry and get rid of the inefficiencies where the canner and the wholesaler took the majority of the profits. So in 1918, at the same time that Sunsweet attempted to wrest the dried fruit market away from the dried fruit packers, Vernon decided to go after the canners. He started the Santa Clara Valley Grower’s Association to attract farmers interested in a cooperatively owned cannery, and started building at Eighth and Taylor. He also lined up some significant names to help with the cannery. Albert Haentze, a Chicago business and real-estate man who had retired to the life of a rancher and San Jose winemaker at Evergreen's Villa Vista ranch, signed on as a manager. S. E. Johnson of Cupertino, another founder, brought his reputation and pull as director at Grower’s Bank in downtown San Jose. Within 65 days of construction, the plant canned 10,000 tons of tomatoes, and an unknown amount of apricots.

Edith Daley visited the California Cooperatives Cannery, and described her visit in the July 16, 1919 San Jose Evening News. Ralph Crary, VP and sales manager, explained why this co-operative would succeed.

"The co-operative cannery is an entirely different proposition from a purely commercial plant," explained Mr. Crary. "The commercial cannery will say to a grower, 'We don't want your fruit.' We say to every one of them, 'Bring it in!' Not only that, but we are ready to take care of all increases in acreage. In reality the psychology of the two methods of operation is as far apart as the poles. The principle in either case is entirely different. In the purely co-operative canneries the grower not only gets a good price for his fruit but by the elimination of the middleman he shares in the canning profit as well.

"The co-operative enterprise," continued Crary, "usually fails for lack of three things: managerial ability, finance, and distribution. We have all three if we may be allowed to modestly admit it. Our officers are men of standing, unquestioned ability and valuable experience. Finances are arranged for and the problem of distribution is solved. It is our aim under good leadership to so enlarge our capacity and distribution that we can put California canned products within the reach of everyone."

One problem, of course, is who would buy all those canned goods, and whether the wholesalers, brokers, and distributors would work well with the new cannery. Campbell himself wasn't a big fan of the existing system; he declared:

“The sore spot in our social infrastructure is distribution. We continue to use the ox cart when a steam railway is needed… The prodders now have a modern piece of machinery under Government control [World War I production and price controls], but “special interests” are moving heaven and earth to prevent our use of it… Good Lord, if this company could save the billions that are wasted and extorted from the people through the present so-called system of distribution, which is an uncoordinated, hit and miss, unintelligent, go as you please, hold up game, we would not need to worry about the cost of freight, wages of railroad workers, the cost of armaments, or the need of good roads. There would be more money than anybody would know what to do with, at least until Henry [Ford] increased his fliver factory and output sufficiently to absorb the surplus cash."

Meanwhile, two thousand miles east, Campbell’s savior from the patchwork of wholesalers appeared.

The Meat Packers

The other half of this disruption story came from an established player: the meat packers. Companies like Swift, Armour, and others had already disrupted the fresh meat market by taking a local, personal, and inefficient job (slaughtering and selling meat in small towns), and turning it into an industrial, regional, and efficient process. The companies bought huge numbers of animals, and dominated the livestock auctions. They ran the specialty newspapers that published the auction results. They built huge, centralized slaughterhouses to turn the animals to meat. They took the huge volume of leftovers from the butchering, and became a major seller of offal, hides, sinews, sausage meat, and hide glue. They ran their own refrigerator cars to control how the meat was carried. They negotiated special rates and trains with the railroad to get the meat to towns quickly. They sold direct to butchers to control prices and the market. Because many towns weren’t big enough to need a full railroad car (10,000 pounds) of meat, they ran “peddler cars” along fixed routes that could provide smaller amounts to a series of towns on a fixed schedule.

The packer’s success was a mixed blessing. Their new methods provided fresh, inexpensive meat quickly to every town and hamlet in the U.S. However, they were also seen as monopolists and bullies, controlling prices and chasing out local butchers and slaughterhouses.

The packers, meanwhile, saw an new business that could use their special touch. As wholesalers, they already delivered meat to every small-town butcher in America. They already used extra space in those refrigerator cars for related groceries - lard, meat by-products, butter. Their distribution network could handle even more. Why not distribute rice? Why not soap? Heck, why not even canned goods? Armour and the others would be able to fill out their freight cars; they could cut deals on wholesale groceries for towns too small to take a full load of meat, and they’d be able to make a tidy profit by eliminating the existing grocery wholesalers.

And why stop only at wholesaling? Why not control production of all these new foodstuffs as well? At first, the packers bought canned goods from the packers - usually in huge quantities, much like Walmart might buy today. But then they realized owning the cannery might be even better. Swift and Company had already been in this game for quite a while, owning Libby’s since the 1880’s. (Libby's had started off making canned meat; Libby's fruit cocktail came later.) The 1918 season encouraged the packers to reconsider buying canned fruit on the open market as overwhelming demand blocked Armour from buying product. Supplies were so short, Armour couldn’t buy canned fruit at any price from the California Packing Corporation. When fruit was available, fear of market control between producers and packers discouraged sales. When Armour tried to buy 20% of Sunmaid’s 1918 crop (800 carloads!), the raisin cooperative turned them down for fear of losing control over their fruit and brand.

And this is where the two stories came together. Vernon Campbell wanted to break the canner's grip over growers with his own canneries. Armour wanted to break the wholesaler’s grip over small town grocers via an alliance with a friendly canner. It’s a match made in heaven.

In 1918, Armour offered to finance the expansion of the cannery at San Jose as long as California Cooperative Canneries could supply them with the canned fruit they needed for their wholesale grocery business. Their $200,000 represented around 40% of the investment in the plant. Campbell had already been pestering the local banks and investors for money that year, but was consistently turned own. For their money, Armour took a 51% ownership stake; the contract guaranteed Armour all the fruit they requested by January 1 of each year at the same price that Del Monte was selling canned fruit futures. If the cost of production turned out to be more than that price, then Armour would pay actual cost.

Apparently, Campbell wasn’t shy about his Armour connection, nor about his plans to let cooperative canneries sweep the state. Mark Grimes, president of the California Tomato Growers’ Association, claimed during 1922 Senate hearings:

Through extensive conferences held with Vernon Campbell during 1918, I know his ambition is to have Armour, through California Cooperative Fruits, gain complete distribution of California canned fruits. This plan and effect were discussed by him with Davidson, their Chicago representative, and Pfiffer, who was at that time in Armour’s Chicago office, in my presence and the presence of other witnesses in San Francisco in 1918.”

Solicitation for growers, Modesto Evening News, Feb. 11, 1920.

To the growers, having another buyer meant profits; Campbell claimed that his entry into canning raised the prices of fruit across the state. R. G. Spencer, "organization manager", declared that the cooperative raised prices for fruit in the Central Valley by $40 a ton in 1919. Dallas H. Gray of Armona was the Visalia buyer for the cannery; he went to bid on the “Visalia Pool” of cling peaches, and bought 6,000 tons one season at $92.50 a ton for cling peaches and $55 for free-stone and lemon peaches. The Del Monte buyers laughed - “Gray, you are crazy for taking on a job like this. You know you cannot get enough cars to ship 6,000 tons of fruit out of Visalia.” But Gray did it - needing sixty men at eight receiving stations across the region to collect the fruit, then somehow finding a way to get the fruit quickly to the cannery at San Jose. The cannery cleaned $6,000 on that deal alone.

Campbell wasn’t doing badly either; his contract as the general manager meant he got 0.5% of the gross receipts of the cannery. For a cannery selling a million dollars of canned fruit a year, he was doing awfully good.

Fears of the Meat Packers

The deal with California Cooperative Canneries was a great deal for Armour. They now had a ready supply of fruit for their challenge of the wholesalers. They also had their pre-existing distribution channel: 1,120 “branch houses” for wholesaling, 1,297 “route cars” visiting fixed routes and stopping in thousands of smaller towns, cold storage warehouses, and trucks.

And, as you might expect, the grocery wholesalers got very, very scared.

In 1922, looking back on the entry of the packers, the wholesaler John G. Clark of Bad Axe, Michigan summarized those fears.

“Michigan is very close to Chicago and prior to this consent decree a number of so-called peddler car routes existed on the railroads in Michigan radiating from Chicago. It was a common practice that, if a quantity of fresh meat insufficient to make a minimum car was unobtainable in a town, then very attractive prices were made in canned goods, soap, rice, or other non-packing house products, in order to move the car forward at the carload rate of freight with this rapid service. With the tremendous tonnage controlled by the packer, he is enabled to continue to enjoy preferential treatment over the wholesale grocer, as was clearly shown at the above mentioned Interstate Commerce Commission hearing.

The FTC, investigating the packers in 1918, noted the effect of the packer's entry into the business.

"Already even the oldest and most strongly established wholesale houses are seeing line after line of their merchandise absorbed by the packers' branch-house stem. First, they saw the packers encroach on the handling of butter, eggs and cheese, then canned goods, then various kinds of "package goods", and now rice, sugar, coffee, and other staples are being increasingly handled by the packers. Last year the Big Five's combined sales totaled $2,127,245,000. At the present rate of expansion, within a few years the big packers would control the wholesale distribution of the Nation's food supply." (1918 FTC report on the meat packers).

Wholesalers were up in arms as they saw their entire business threatened by the entering monopolists. They were particularly incensed because the packers had, in their opinion, all sorts of preferential treatment. The packers ownership of their own refrigerator cars to carry the goods meant they weren't subject to the car shortages that every other business faced. They received lower shipping rates, and had lower minimum car weights for shipping charges. They had better schedules with their peddler cars.

Many of those advantages transferred over to California Co-operative Canneries. If the railroads couldn't provide enough freight cars to the canneries, the cannery could request cars from Armour's private fleet. Vernon Campbell highlighted that the refrigerator car shortages were a problem even for non-perishables such as canned goods; the risk of freezing mid-continent convinced canners such as him to use refrigerator cars for any product shipped even in fall or spring.

Some of the arguments weren't completely fair. Armour might have a smaller minimum charge and easy access to their own refrigerator cars, but they also paid to build and maintain the cars. The fixed peddler routes gave them guaranteed capacity and fixed schedules, but independent packers could sometimes ship faster without the fixed schedules. The packers also had strong reasons to build their own car fleet. Swift, the first meat packer in the refrigerator car business, built their own refrigerator cars because the railroads weren't willing to risk their investment in stock cars and animal pens.

The packer's moves into the canning business also were at an awkward, politically charged time. World War I's food demands for soldiers and rising prices meant that the packers' actions were looked upon suspiciously. In 1917, President Wilson took a stand and asked the Federal Trade Commission to research whether there was an unlawful monopoly in meat packing by the "big five" - Armour, Swift, Morris, Wilson, and Cudahy. The FTC found there was, and highlighted that much of the problem was their marketing and wholesaling:

If these five great concerns owned no packing plants and killed no cattle and still retained control of the instruments of transportation, of marketing, and of storage, their position would not be less strong than it is. The competitors of these five concerns are at their mercy because of the control of the market places, storage facilities, and the refrigerator cars for distribution." (Federal Trade Commission Report on the Meat Packing Industry).

At the time, the "Big Five" packers controlled somewhere between 60 or 80% of the meat industry, depending on how you counted. Packer's profits in 1917 were four times what they are before the war. They slaughtered 70% of the livestock. They owned 90% of the refrigerator cars in meat service. They ran their own ice docks. They could demand rebates and discounts from railroads, rather than regular shipping rates. Their companies were in the hands of very small number of rich individuals rather than a wider set of shareholders who might encourage moderation.

The "Big Five" packers also had control over half the eggs and cheese, and a quarter of the canned fruits and vegetables for some products. They secured control over vegetable oil, and were trying to extend their power to fish and other foods. Between 1916 and 1917, they tripled their canned goods sales, outdoing the two largest independent wholesalers by a similar amount. In 1917, Armour handled 23% of all grain at Chicago. The same year, Armour started handling rice, and immediately became the "greatest rice merchant of the world" in their own words. Rice prices, coincidentally, rose 65% the next year. This wasn't a time when their actions would be viewed charitably.

The pressures of the public and of President Wilson led to a serious investigation by the Federal Trade Commission. Needless to say, they didn't look upon the packer's actions generously.

First off, the packers hadn't made it easy to trust their actions because of thirty years of suspicious behavior. The first study of the packers in 1890 found explicit collusion and restraint of competition; these revelations led to the Sherman Antitrust Act. The packers found ways to work around the laws. They split up the meat market between the companies, with each company having an explicit quota of sales, with companies buying too much livestock or selling too much fruit kicking back the profits to those not meeting quotas. A 1912 investigation found that until 1896, the packers still met every Tuesday afternoon as a group to discuss sales and adjust each packer's sales. Although the packers stopped meeting in person in 1896, Henry Veeder continued to manage "pools" to set quotas and margins for each region, and assess penalties and bonuses for packers who strayed from their quota. The pools were finally ended after a Department of Justice investigation in 1903. To work around the defeat of their pools, Armour, Swift, and Morris instead secretly arranged to buy up the competitors and build a new "National Packing Company" monopoly (imitating the American Can Company monopoly, and the California Fruit Canners Association merger of canners around the same time). The government looked poorly on the merger, so National Packing was split up in 1912, and the smaller packers split between Armour, Swift, and Morris.

Even in 1917, the packers still seemed to think that the U.S. wasn't going to act against them. During the 1917 investigation, government investigators caught the packers in outright lies, with an Armour vice-president claiming no interest in the Chicago stockyards, yet the treasurer of the company later admitted that they'd transferred the company's complete ownership as the investigation was started. The company's attorney initially refused to testify on the grounds he might incriminate himself, but later testified to facts that didn't match documents he'd signed.

The FTC also found the packers were expanding their monopoly into foreign countries, and actively expressed worry that the packers' action was going to reflect badly on the U.S. In a short time, the U.S. packers controlled half of export meat for Argentina, Brazil, and Uruguay.

The Packers Get More Than a Hand-Slap

The Federal Trade Commission 1919 investigation was damning. Six volumes long, it condemned the meat packers in every way possible. The FTC's opinion was for more control - turn the refrigerator cars and stockyards under government control, divest the cold storage plants and warehouses, and run stockyards as common carriers who had to provide access to all.

The final Packer Consent Decree wasn't as extreme as the FTC wished, but it was a huge attack against the packers. The initial agreement in 1919 banned the big five meat producers from owning stockyards and stock-market newspapers, stockyard terminal railroads, retail meat markets, public cold storage warehouse. They were banned from handling fresh milk, and manufacture and sale of other food lines. The packers were explicitly banned from selling fresh or canned fish, vegetables, fruit (except meat-related stuff such as baked beans or mincemeat), soda, candy, coffee, nuts, flour, bread, and grape juice. They had to get out of the market supplying soda fountains. Worst of all, they had to sell their refrigerator car lines. And this wasn't going to be a slow divestment: companies had to plan to dispose of the banned businesses within 90 days. The federal government locked the status quo in place even more with the 1921 Packers and Stockyards Act, which restricted the packer's behavior in the meat industry.

From the 1922 re-hearing on reversing the consent decree:

Mr [Vernon] Campbell: “When I talked to Mr. White, vice-president of Armour & Co, I asked him why they had signed such a foolish agreement, and he said they were holding a gun to his head and he had to sign.
Mr. Breed: Mr White, of Armour & Co. said that?
Mr. Campbell: Yes Sir
Mr. Breed: “Who was holding a gun at his head?”
Mr Campbell: “Attorney General Palmer. The point was this: that all this publicity, and this continual hounding by the Federal Trade Commission, and those wild charges made against the packers, it was injuring their business in foreign and domestic trade; it was depreciating their securities, and it was causing the foreign governments to begin to investigate the affairs of the packers, in some instances closing the doors to their business, so that in order to relieve themselves from this persecution they were willing to do almost anything to get out from under the charges, Mr. White said were unjustly made, by the Federal Trade Commission.”

Or, to quote that old Transylvanian proverb, “When the peasants with pitchforks and torches are at your castle door, it doesn’t matter that you've already stopped building the monster."

The final ruling on the Packer Consent Decree dragged out over years. The packers, with Vernon Campbell as the public face, took to the Senate in an attempt to reverse the Packer's Consent Decree. By 1924, the California Co-operative Canneries was allowed to legally fight the case (Packers Lose in Food Fight. May 20, 1929 Milwaukee Journal.). An appeals court temporarily reversed the decree in the mid-twenties, but the decree was finalized in 1929 when the the Supreme Court refusing to get involved.

After the Packer’s Decree

The packers moved quickly, selling many of the businesses within a year of the initial decree. Armour sold their refrigerator car business to a new Fruit Growers Express company. The packer's exit also encouraged the growth of other refrigerator line companies, including the Southern Pacific and Union Pacific's Pacific Fruit Express. Libby, McNeil, and Libby had already been spun off from Swift & Co. in 1918.

Overall, the fallout was mixed for the meat-packers. Immediately after the divestment, the post-war downturn in the economy cut their sales, and caused investors to flee Armour's stock. J. Ogden Armour, the majority owner, had been relying on debt to buy all sorts of unrelated businesses. When Armour's stock tanked, he watched his fortune disappear until he was finally chased out of the company in 1923. Morris & Co., also suffering, was merged into the remains of Armour. Louis Swift, by comparison, saw the decree as a chance to streamline his business and left in a stronger state (Maureen Ogle, In Meat We Trust: An Unexpected History of Carnivore America).

Vernon Campbell, meanwhile, was in a tough spot. Within a year of starting the California Cooperative Canneries, he'd already lost the company that was bankrolling him, which also was buying 50% of his product. Finding buyers was now his primary job; he applied for a passport in 1922, with the purpose of "selling canned fruit in Europe".

But the California Cooperative Canneries did survive. In 1926, the company even managed to expand, building a tomato cannery in Sacramento, buying Delta Packing's cannery in Isleton, and starting a related shipping terminal in Oakland. A 1928 newspaper article claimed Co-operative Canneries had ten outposts across California.

Like all canners, the depression hit the canner hard. The Sacramento cannery shut down unexpectedly in September 1930, leaving 150 workers without pay for the season. The other canneries also succumbed to a lack of market for their goods. By 1931, the company was gone. A new co-operative, the Tri Valley Packing Association, bought the San Jose, Modesto, and Visalia plants. Sacramento's cannery was reopened by the landowners as Bercut-Richards Packing Co.

California Cooperative Canneries plant, Modesto, 1923.

With the end of the cannery, Campbell left the Bay Area, finally settling in the Sierra foothills by 1940. At age 65, he still listed his occupation as "promoter and organizer of cannery plants". He'd been a promoter the whole time. Even his opponents saw him the same way; Ernest Richmond (of Richmond Chase) denigrated some of Campbell's work in Southern California, but declared "he, himself, is a promoter 100 per cent efficient." Even retired, Campbell was still quite insistent on promoting co-ops and taking on the established canners.